SEC May Limit Defense Tactics In Takeover Bids

An article in yesterday's Business section incorrectly stated the amount that T. Boone Pickens Jr. offered per share for Unocal Corp. earlier this year. The correct amount is $54 a share.

By David A. ViseBy David A. ViseJuly 2, 1985

The Securities and Exchange Commission proposed a rule yesterday that would outlaw the controversial antitakeover technique used by Unocal Corp. earlier this year to defeat a hostile bid by T. Boone Pickens Jr.

Earlier this year, Pickens offered $72-a-share bid for Unocal. In May, in an effort to block the takeover, Unocal excluded Pickens from the company's offer to buy back a portion of its own stock from shareholders.

At the time, Pickens was the biggest single Unocal shareholder, with more than 10 percent of the stock.

Pickens dropped his bid to acquire the company once Unocal's defensive tactic was upheld by the courts and said he would not attempt any other takeovers until the decision was clarified.

The SEC proposed a rule yesterday that could put Pickens back in the takeover game.

The rule would require companies making tender offers to make the offer available to all stockholders and would require companies to pay all stockholders the highest price offered to any stockholder.

"The SEC has covered the base with this proposal, and stockholders will certainly benefit by the their prompt action," Pickens said in a telephone interview. "Some managements will hate this because it could take away their entrenchment device. I believe this rule will be adopted."

Pickens has said that allowing Unocal to exclude him from its tender offer hurts stockholders of public companies by discouraging hostile takeover bids that increase stock prices.

In a move that could help companies ensure that all stockholders are treated fairly in takeovers, the SEC also proposed yesterday that third parties making tender offers be subject to the same rules as companies.

Thus, bidders making tender offers would be required to make their offers to all stockholders and would be required to pay all stockholders the highest price offered to any.

The public will have the opportunity to comment on the SEC proposals before the commission decides whether to adopt them. One controversial issue that legal experts believe will be raised during the comment period is the conflict between federal and state laws regulating takeovers.

Some legal experts believe the new SEC rule would extend federal law and conflict with state laws governing takeovers, but SEC general counsel Daniel L. Goelzer said he believes the proposal merely "makes explicit a requirement that has always been implicit in the Williams Act."

The Williams Act is the federal law governing tender offers. It already requires all shareholders to be treated equally in a tender offer such as the one Unocal made to all of its shareholders but Pickens, Goelzer said.

Corporate raider Carl Icahn has said he believes that allowing Unocal to defeat Pickens' takeover bid by buying back shares from all of its stockholders except Pickens "seriously curtails takeover activity because you don't know where you stand. . . . The consequences are not good for the American economy because it means you entrench management. I think it curtails the answerability of poor managements, and that is bad."

In allowing Unocal to exclude Pickens from its tender offer, the Delaware Supreme Court said in May that, "While we caution boards of directors of Delaware corporations that they do not have unbridled discretion to defeat any perceived threat to corporate control by any draconian means available, we are satisfied that, in the context of this inadequate tender offer the bid for Unocal by Pickens , Unocal's action purchasing a portion of its own stock from all shareholders except Pickens is not so irresponsible and unjustified. . . ."